The Hindu Business Line : Cotton prices may plunge further

As production is forecast to exceed consumption during the year leading to an increase in world ending-stocks, prices on an average are expected to plunge further in the new season, much to the relief of consumers.

A weak sentiment is already pervading the marketplace. But the emerging international scenario is a double-edged sword as far as India is concerned.

World cotton production is set to rise by over 10 per cent to a new high of 22.6 million tonnes in 2004-05 (20.4 mt) while consumption is projected to reach 21.5 mt, up 3,50,000 tonnes from the previous year, according to the International Cotton Advisory Committee (ICAC).

While the textile industry in China will continue to serve as the locomotive for world mill use, the growth in mill consumption in that country is forecast to abate from an estimated 8 per cent in 2003-04 to 6 per cent this season. Consumption in China is expected to reach 7.4 mt, up 4,00,000 tonnes from the previous year, the Washington-based agency pointed out.

In the rest of the world, cotton consumption is expected to stagnate at 14.1 mt as continuing declines in developed nations will offset increases expected in South Asia.

The supply-demand fundamental suggest that season-average Cotlook A-Index, a measure of international cotton prices, will decline to 57 cent per pound, 12 cents below 2003-04 average.

Given the adverse effect, an aberrant southwest monsoon during July will have on cotton production in India, lower international prices will tend to depress the domestic market, which can hurt growers here.

While cotton exports from India could be hit, for textile mills, imports would become an attractive proposition unlike last season when prices shot up dramatically.